The practice of giving employee gratuities or “tipping” allegedly originated from the 17th century English practice called “To Improved Promptitude” or “TIP”. As the story goes, bar patrons would slip waiters a coin to speed up delivery of their drinks. The practice has now changed so that the tip is given at the end of the service and not the beginning. And now, California law has quite a bit to say on the issue of tipping. Here are five things to know about employee gratuities in California.

The Gratuity is the Exclusive Property of the Employee

California law clearly states that the tip belongs to the employee, not the employer,“Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid…” Labor Code Section 351.

This raises two common legal issues. First, it is unlawful (both civilly and criminally) for the employer to take any part of the tip that was left for the employee. Employers cannot require their employees to share their tips with the employer. One-hundred percent of any tip must go to the employee.

Next, it is legal under specific circumstances for employers to require employees to share their tips with other employees, called “tip pooling”. However, managers, certain supervisors, and owners cannot share in the pooled tips, even if those persons participated in the table service of the customer.

2. Minimum Wage Must Still Be Paid

People are often surprised to learn that California employees who receive regular tips, such as waiters, must still be paid at least minimum wage before tips. This requirement applies no matter how much the employee is tipped on a given day. For example, a waitress could receive $100.00 in tips over the course of an hour and the employer must also pay at least minimum wage of $10.50 per hour. It is illegal to pay employees exclusively in tips.

California’s employee-friendly tip law is in the minority. Most states and the federal government allow employers to credit or offset the applicable minimum wage if the employee receives tips at work. Furthermore, roughly 40% of the states only require a base wage of just $2.13 per hour for tipped employees; the rest of the wage may come from tips.

3. Employers Cannot Deduct Credit Card Fees

Issues with employee tips increasingly arise as more and more people pay by credit card. Employers are expressly prohibited from deducting any credit card transaction fees from tips. For example, if a customer pays a gratuity of $5.00 and a $20.00 bar tab by credit card, and the employer pays a $1.00 transaction fee to the credit card processor, the employer is not allowed to require the employee to pay the twenty-cent pro rata share of the credit card fees. All of the credit card fees must be paid by the employer.

This law is a good example of how California wage laws can be very favorable to employees and burdensome for employers.

In the hustle and bustle of a restaurant, it can be easy for employers to overlook their rigorous obligations to allow for the opportunity for breaks under California law.

5. Employers Can Be Sued For Violations

Employers who even unknowingly violate California’s gratuity laws can face a variety of legal claims. This includes minimum wage violations, tip theft “conversion”, and violation of California’s tip laws. Employers with 20 or more employees who violate these laws may be sued as a part of a class action lawsuit, or under California’s Private Attorney General Act (called “PAGA” and pronounced “pah gah” by lawyers).

Are you a tipped employee in California? Do you have questions or concerns about how your tips are being handled by your employer? Contact the Law Office of Brian Mathias.

Lunch breaks (legally called “meal periods”) must be provided after five working hours and must be at least one half-hour in length. Importantly, lunch breaks must be “duty-free”. A duty-free lunch break means that the employee is not required to perform any work. Employers who require employees to eat at their desk or do not allow the employee to leave the business premises do not provide “duty-free” breaks and are in violation of California law.

Employers who fail to provide a duty-free meal period are required to pay a penalty to the employee called a “meal period premium” of one additional hour of pay for every missed meal break. (For example, a non-exempt employee paid $10.00 per hour would be owed a $10.00 meal premium for each missed break).

Employers who systematically do not provide employee lunch breaks, especially those with many employees, face potentially enormous exposure in premiums, interest, penalties, and attorney fees.

There are only a few exceptions to California’s otherwise stringent lunch break requirement. One such exception is the “on-duty meal period”. Under the on-duty meal break exception, an employer may require an employee to work during their lunch break, provided that the employee is paid their normal wage during their lunch. Since it can be burdensome for employers to schedule and provide regularly occurring meal breaks, employers frequently attempt to use this exception.

However, on-duty meal breaks come with a huge catch. The exception is so narrow that only a tiny fraction of all employers could ever successfully use it to defend against a meal break lawsuit.

To apply the on-duty meal break exception, the employer must prove that the nature of the work makes it “virtually impossible” for the employee to take a duty-free half hour meal break. In other words, there is literally nothing the employer could reasonably do to create the circumstances that would allow a proper, duty-free lunch break.

Legally enforceable and valid on-duty meal periods also require the employer and the employee to enter into a revocable, written agreement stating that both parties agree to the on-duty meal period. This requirement is often overlooked by employers.

To illustrate these concepts, Mike works at Hot Dog on a Stick in Watsonville and is paid $15.00 per hour. Because Mike is the only manager during the night shift, Jared the owner requires him to be on-duty at all times to answer employee questions and deal with difficult customers. Jared verbally tells Mike that he must take “on-duty meal breaks” and forbids Mike from leaving the restaurant for longer than 10 minutes. Mike works for many years under these circumstances, and then is abruptly fired after he is wrongfully accused of stealing a corn dog.

Mike has a great case for unpaid meal breaks because the narrow on-duty meal break exception does not apply.

Even though Mike is the only manager at Hot Dog on a Stick, it is not “virtually impossible” for him to take a thirty minute, duty-free meal break. Other employees could have simply been trained to handle employee questions and customer complaints. Jared could have re-scheduled other employees to assure coverage during Mike’s half hour lunch break. Additionally, Jared failed to ever enter into a written On-Duty Meal Period Agreement with Mike, as is required by the narrow exception.

If you make less than $47,476.00, you may be entitled to a substantial amount of unpaid overtime by your employer due to a change in California and federal employment law.

For legal background, there are two employee classifications in California: exemptemployees and non-exemptemployees.

Exempt employees are not entitled to overtime for any hours worked in excess of eight hours per day or 40 hours per week, meal breaks every five hours, rest breaks every four hours, and other protections. A non-exempt employee could work 100 hours per week and not be entitled to anything but their regular salary (ie. $60,000 per year). A properly classified non-exempt employee must be paid a minimum salary of $47,476 beginning December 1, 2016, and must spend 51% of their time performing non-exempt job duties, such as supervising of other employees or perform high-level office work, like accounting or human resources.

Non-exempt employees are entitledto overtime, breaks, and many other protections. For example, a non-exempt employee would be entitled to 20 hours at 1.5 times their regularly hourly rate if they worked 60 hours per week. Statistically, most employees are non-exempt, even employees that spend some time managing other workers or who perform non-manual office work.

Employers regularly misclassify employees as “exempt” to avoid rigorous obligations to pay overtime and provide breaks. However, there is a common misperception among workers and employers that an employer simply needs to pay an employee a flat salary, rather than an hourly wage, in order to classify an employee as “exempt” from overtime. Payment of a salary rather than an hourly wage is just oneof many factors in determining whether an employee is properly classified.

Moreover, beginning December 1, 2016, all exempt employees must be paid a minimum salary of $47,476in order to be properly classified as exempt. This means that any worker paid under $47,476 must be paid overtime and be provided with rest breaks beginning December 1, 2016.

The new law means that many exempt employees will be getting a pay raise to $47,476 or more beginning December 1, 2016, or will be converted to hourly-paid employees. However, many employers may not change their policies in light of the new law.

All “non-exempt” employees are entitled to legally protected work breaks. A non-exempt employee is typically a non-managerial level employee, an employee who performs a physical job, or any employee who earn less than $41,600 per year. In contrast, an “exempt” employee will typically work in management or will have specialized job or background. An employee may earn much more than $41,000 per year still be considered “non-exempt.”

Numerically, most employees are non-exempt and are entitled to take protected breaks. An employee’s “classification” as exempt or non-exempt is a very fact-intensive analysis that depends on what the employee spends the majority of his or her time doing.

Employers regularly misclassify their employees. Employers have a financial incentive to classify employees as “exempt” to avoid the obligation to provide legally required breaks and to avoid paying overtime. And many employers simply do not know how rigorous their obligations are under California law. For these reasons, many employees are not provided with rest and meal breaks when they should be.

What are protected rest and meal breaks?

There are three types of protected breaks in California: rest breaks, meal periods, and recovery periods.

Rest Breaks:

Rest breaks are the most common form of legally protected break. All non-exempt employees are entitled to one, paid 10-minute rest break for every four hours worked. Most importantly, the rest break must be “duty-free”. A duty-free rest break means that the employee is not doing any work for the employer.

Meal Periods and Lunch Breaks:

Meal periods or lunch breaks are the next most common type break. One unpaid, half-hour meal period must be provided for every five hours worked. Like rest breaks, the employee must be given a realistic and meaningful opportunity to take a “duty-free” meal period. This means that employees must be permitted to leave work and be completely free of any work obligations. Employees who are required to take their lunch break at their desk are not being provided with a duty-free meal period.

Recovery or Cooldown Periods:

California also requires employers to provide five minute recovery periods or “cooldown periods” or “shade breaks” to employees who work outside in high temperatures. The purpose of this type of break is to prevent heatstroke illness. Recovery periods are the least most common form of protected break because they only apply to employees who work outdoors and in the heat, such as construction workers, agricultural workers, and landscaping employees.

What happens if an employee is deprived of their breaks?

Employers owe their employees penalties if the employee is deprived of the opportunity to take legally protected breaks. One such penalty is called a meal or rest break premium—equivalent to one additional hour’s pay at the employee’s regular rate of pay for missed breaks, up to two hours per day. These penalties can add up to thousands of dollars, especially for employees who have been deprived of their breaks for a long period of time.

As an illustration, take the case of José the bartender. José works as a bartender at a popular bar in downtown Santa Cruz. José works five nights per week from 4:30 p.m. to 2:30 a.m. and is paid $15.00 per hour. José works with one other bartender, Mike. Mike and José are the only employees on site at the bar. The bar is very popular among UCSC students and patrons are lined up at the bar waiting to buy drinks all night long. José has been repeatedly told by the bar’s owner, Jared, under no circumstance should any patron wait longer than 5 minutes at the bar for a drink.

Given the bar owner’s instructions to José about customer wait times, the bar’s popularity, and the understaffing, Jose never has the opportunity to take a duty free break at work.Unfortunately, José is abruptly terminated after he presses the wrong button on the credit card machine, resulting in a loss of hundreds of dollars to the bar.

José does not have a case for wrongful termination. However, he does have a great case for failure to provide rest and meal breaks. Since José worked ten hours per shift, he should have received two duty-free half hour meal periods and two duty-free 10-minute rest breaks. José can get the maximum penalty of two hours additional pay for every day that he was deprived two or more breaks; $30.00 per day. That totals $7,800 per year going back up to four years, or $31,200.

After unpaid overtime, interest, and state penalties are factored in, José’s damages are in excess of $100,000.

Are you a Santa Cruz, Monterey, or Salinas employee who can’t get a break at work? Contact the Brian Mathias Law. Se habla español.

Terminated employees in California are often handed multiple documents from their employer upon termination. These papers will commonly include a three to ten-page “Severance Agreement”. Understanding the ramifications of a Severance Agreement, especially in the emotional blur of a termination, is very difficult without help.

So what is a Severance Agreement?

In plain English a Severance Agreement is a contract between an employer and a soon-to-be terminated or an already terminated employee. In the contract, the employer agrees to pay the employee money in exchange for a promise from the employee never to sue the employer. That’s the basic idea.

The amount of money offered—or negotiated—between the employer and the employee may range from several thousand dollars to tens of thousands of dollars. The amount offered depends on the employer’s actual or perceived exposure to a lawsuit from the employee, the employee’s salary, their length of employment, as well as other factors.

For legal background, no California law requires private employers to offer a Severance Agreement. Unless previously obligated under contract, employers are legally permitted to fire employees and offer them $0.00 in Severance.

So then, why would employers want to pay more money to an employee that they have already decided to fire? Well, because it requires employees to give up something very valuable in return: the right to sue.

Employees have a host of legal rights in California. These rights include the right to not be terminated for an illegal reason, such as a discriminatory or retaliatory reason. It also includes the right to be paid overtime in many situations. Employers who violate employment laws face expensive and drawn out lawsuits. But not if the employer can get the employee to sign a Severance Agreement. That’s why an employer wants you to sign the Severance Agreement.

If offered a Severance Agreement, employees should not sign the agreement without knowing if they have a legal claim against their employer and the value of those claims. The only way to do that is to contact an employment law attorney. Plaintiffs’ employment law attorneys often provide a discounted initial consultation to review Severance Agreements.

As a hypothetical but common example, let’s take the case of Ryan. Ryan works at a bustling restaurant in Monterey as a waiter. Ryan is given the job “Front House Manager”. Ryan regularly arrives at work at 10:00 a.m. and does not leave until 11:00 p.m. Despite Ryan’s title, Ryan spends just 10% of his time managing other employees. 90% of Ryan’s time is spent cleaning and waiting tables. Ryan is never paid overtime, despite working 13 hours per shift. Nor is Ryan provided the opportunity to take duty-free rest and meal breaks.

After a particularly long shift, Ryan asks the hotel owner about getting overtime pay. In response, the employer angrily tells Ryan, “You should be thankful to have a job at all! I’m not paying you overtime.” When Ryan shows up the next day, he is fired and is handed a Severance Agreement offering $2,500.

Luckily, Ryan immediately calls an employment law attorney. During a free initial phone consultation, Ryan is surprised to learn that he has three potentially large claims against his former employer: an overtime claim worth $45,000; a meal and rest break case worth $6,000; and a retaliation case for firing him in response to asking for overtime. After Ryan learns that he has a case worth $75,000, he refuses to sign the Severance Agreement.

Ryan may now negotiate for a greater amount of money in the Severance Agreement, or proceed with a lawsuit against his employer.

Are you a Monterey, Salinas, or Santa Cruz County employee who has been offered a Severance Agreement? Contact the Law Office of Brian Mathias for a consultation.